The Resource Curse: A Clean Hands Trust for the People of Sudan (Part 4)

This is the fourth in a series of four articles that were first posted in 2007 in the Council's online magazine Policy Innovations.

This article series has argued that Western governments should prevent their corporations from buying resources from severely repressive regimes and civil warriors. The U.S. government already supports this view in some places. For example, since 1997 the United States has barred American energy companies from trading with the regime in Sudan, in part because of this regime's grim record on human rights. (Sudan rates a '7' on the Freedom House scales for both civil liberties and political rights.)

Yet imagine that all the major Western powers were fully to adopt the property-rights approach suggested here, and stopped their corporations from trading with the worst regimes. We might wonder whether even this would end the resource curse. Wouldn't other countries that are less fussy about moral principles and property rights purchase these resources anyway? Even if the West stops trading with the regime in Khartoum, won’t China continue to buy Sudanese oil?

Moreover, after a China-Sudan oil sale goes through, won't American consumers still end up receiving stolen goods when they buy Chinese imports? The looted Sudanese oil will percolate through the Chinese economy, and so will become a factor in producing many of the Chinese goods that Americans import. It seems that as long as China buys from Sudan and then sells to America, American shoppers will end up with dirty hands.

The solution in this situation again turns on enforcing property rights, this time through trade policy. Say that China buys $3 billion worth of oil from the Khartoum regime. The U.S. government should immediately announce a Clean Hands Trust for the People of Sudan. This trust is a bank account to be filled to $3 billion: the value of the stolen oil bought by the Chinese. The money to fill the trust will be raised by tariffs on Chinese imports. The money in the trust will be turned over to the Sudanese people once a minimally decent government is in place in Sudan. This trust-and-tariff mechanism enforces property rights by retaining the value of the looted property for the citizens of Sudan, who are the legitimate owners of that property.

The tariffs here are different from other tariffs: they are "anti-theft tariffs" whose purpose is to enforce property entitlements. The tariffs will correct a flaw in the market by pushing a significant portion of the global movement of resources into the domain of trade, so that it is no longer merely a massive shifting of stolen goods. These tariffs are no more a restraint on free trade than is a court order to return stolen property, or a prison term for a thief.

A POLICY ALIGNED WITH INTERESTS AND POLITICS

This trust-and-tariff mechanism will generate strong incentives for a variety of domestic interests to support the property-based approach. Many American companies (in apparel, electronics, machinery) will want tariffs to protect them against Chinese competition, and will not care where the money from the tariffs goes so long as the tariffs are placed on Chinese goods in their sector. The American banking industry will also be enthusiastic about the Clean Hands Trust, as American banks will hold the tariff proceeds until they are turned over to the Sudanese people. Both the manufacturing and banking sectors will welcome the opportunity publicly to support measures aimed at helping poor people overseas. Moreover, these industries will provide a political counter-balance to any pressure from the international resource corporations to change the Freedom House ratings for Sudan as quickly as possible.

The Chinese, for their part, will have much less of an incentive to buy more oil from Sudan, knowing that if they buy more oil worth $2 billion then the United States will impose additional tariffs worth $2 billion on their goods. And the Sudanese people will know that there is a great deal of money waiting for them if they can replace the current regime with a minimally unified, decent government. The Clean Hands Trust gives the Sudanese people an extra incentive to unite in installing a government that will represent the wishes of all the people, while drying up the revenues that fuel the resource curse.

It is true that when the anti-theft tariffs are in place American shoppers will have to pay slightly higher prices for some Chinese imports. But consumers must always pay higher prices when they buy legal merchandise. Shoppers will always pay more to buy a watch from a department store than they would to buy the same watch from a black market dealer on the street.

With a slight modification, the trust-and-tariff mechanism can be implemented in any country. Any government that prohibits its corporations from buying Sudanese oil may set up a Clean Hands Trust once the Chinese sign a contract with the Khartoum regime. Each government that sets up such a trust must then continually update its public report of how much money its trust is holding, and all governments must stop filling their trusts once the combined global total equals the amount of the Chinese contract. This gives the "clean" countries a competitive incentive to announce and fill their trusts as quickly as possible, while limiting the amount the Chinese will be penalized to the amount of the original property rights violation.

The trust-and-tariff proposal will also attract broad support across the political spectrum in affluent countries. Free market advocates will support the idea because these mechanisms enforce property rights, thereby extending and strengthening the global market order. Protectionists will back the tariffs because they protect domestic manufacturing and so keep good-paying jobs from moving overseas. Those who prioritize national security will see in the proposal an opportunity to strengthen failed states where terrorism can incubate, and also to weaken the hold on power of potentially hostile "petrocrats."

Environmentalists should also support the property-based approach, as its implementation would inevitably raise the price (and so lower the consumption) of petroleum, leading to lower global carbon emissions. And humanitarians will rightly see the proposal as helping to improve the conditions and opportunities of some of the most impoverished and oppressed people in the world.

CONCLUSION

This article series has argued that international trade channels a massive flow of stolen goods into affluent countries due to a might-makes-right rule left over from the era of absolute state sovereignty. Consumers in countries like the United States unknowingly buy these stolen goods in their everyday purchases. The money from these purchases goes to fund violent repression and civil war in poor countries. This is a major defect in the global market order.

The powerful institutions of the affluent countries can be used to reshape global commerce so that it conforms to market principles. In particular, two mechanisms can enforce property rules against the middlemen who buy resources from regimes that cannot have the right to sell them.

The first mechanism is litigation in rich countries against international resource corporations that buy resources from dictators and civil warriors. This legal action reverses the incentives of the resource corporations so that these corporations will be strongly motivated to secure the basic rights of citizens in poor countries, instead of being strongly motivated to remain complicit in the violation of these rights. If the only way for ExxonMobil legally to get oil out of Equatorial Guinea is for there to be minimally decent governance in Equatorial Guinea, then there will be minimally decent governance in Equatorial Guinea—at least if there is any way at all for outsiders to help achieve this.

The second mechanism utilizes trade policy in rich countries to enforce property rules against foreign countries that insist on buying resources from the worst regimes. This is the trust-and-tariff mechanism just described. This trade policy will be more effective than traditional trade sanctions, because it tracks resources stolen from a country wherever these resources go. And this policy will generate its own support, since it is aligned with major commercial interests as well as with key agendas across the political spectrum.

Peoples have rights, and there are things no person or group may do to them without violating those rights. Buying and selling a country's resources without the people's consent certainly crosses that line. The first step in reforming global commerce must be to end the traffic in stolen resources. The priority in improving the prospects of the world's poor must be to enforce the entitlements they already have.